# 经济代写|国际经济学代写International Economics代考|BEA105

## 经济代写|国际经济学代写International Economics代考|BACKWARD BENDING OFFER CURVE

In the case mentioned above where TOT improvement along the offer curve is more than proportionate to the change in import demand so that the additional import demand may be financed by even smaller export volumes being offered, the offer curve is backward bending towards the import-axis after a certain high level of import demand. Figure $4.3$ depicts such a backward-bending home offer curve.

What appears from equation (4.6) and the above discussion is that the upward slope and backward bend of the offer curve can be related to the value of import demand elasticity measured along the offer curve. The price elasticity of the home import demand, denoted by $\varepsilon$, is the percentage change in home import demand for computers for a 1 per cent change in the (relative) price of computers in the world market:
$$\varepsilon \equiv-\frac{\hat{M}}{\hat{p}^w}$$

For a movement up along the rising part of the offer curve, $\mathrm{O} b$, from one point to another, the volume as well as value of the export offer increases. The volume of imports, on the other hand, rises as well whereas TOT improves, that is, $p^w$ declines. The import bill may thus go up or down. But since the value of exports rises along this rising part of the offer curve, the import bill or value of imports by the home country must rise proportionately to maintain trade balance. This can happen only when the import demand is price-elastic $(\varepsilon>1)$, that is, increase in import demand is more than proportionate to the decline in $p^w$ at the margin.

Along the backward bending part $b H$, on the other hand, value of exports declines necessitating a decline in the import bill as well. This means the import demand should now rise by less than proportionately to the decline in the import price. Hence, along the backward bending part of the offer curve, import demand must be price-inelastic $(\varepsilon<1)$. Putting this discussion upside down, we can say that when home import demand is price-elastic, an improvement in TOT raises the import demand more than proportionately and thereby raises the import bill. This must be financed through a larger volume of exports. Hence, the offer curve slopes upward. But when the home import demand is price inelastic, an improvement in TOT raises the import demand less than proportionately. The import bill thus falls and now the home country can lower the offer of exports. Hence, the offer curve now bends backward.

## 经济代写|国际经济学代写International Economics代考|OFFER CURVE UNDER CONSTANT OPPORTUNITY COST

When the opportunity cost of producing textiles is constant, the offer curve has a linear segment as illustrated in Figure 4.4. Note that PPF (drawn in the left hand panel) in this case is a straight line implying that resources can be shifted from one sector to the other at the same (relative) marginal cost till the economy specializes completely in one of the goods. Recalling the discussion in Section 4.1, the home country in this case can offer higher exports by expanding production at a constant cost. That is, higher export offers can be made even at a constant TOT. This, however, is possible as long as resources can be shifted out of the industry producing computers and employed in the textiles industry. But once the economy reaches the point of complete specialization (as at point $F^{\prime}$ in left hand panel of Figure 4.4), the production of textiles cannot be raised any further since all the resources of the economy at this point have been fully exhausted. The only way the export offer can be raised from this point onwards is through lowering domestic consumption of textiles. But this requires the (world) relative price of textiles to rise, that is, TOT to improve. Hence, beyond point $K$, the home offer curve is non-linear and convex downwards. Point $K$ along the home offer curve corresponds to the complete specialization point $F^{\prime}$, and the larger is the maximum possible volume of production of textiles (that is, larger is the horizontal intercept of the linear PPF), the more elongated is the linear segment $\mathrm{O} K$ of the offer curve. As we will see later, this has a far-reaching implication for post-trade TOT movement and Ricardo’s analysis of GFT.

## 经济代写|国际经济学代写International Economics代考|BACKWARD BENDING OFFER CURVE

$$\varepsilon \equiv-\frac{\hat{M}}{\hat{p}^w}$$

## 经济代写|国际经济学代写International Economics代考|OFFER CURVE UNDER CONSTANT OPPORTUNITY COST

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